SAMPLE - 3530-Midterm Exam-Questions

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Finance

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Full Name Section Student ID # AP/ADMS 3530 3.00 Finance SAMPLE Mi d term E x a m Exam Version: X Solution P l e a se note t h e fol l o w ing points : 1) Read the questions carefully and use your time efficiently . 2) Choose the answers that are closest to yours, because of possible rounding. 3) Keep at least 4 decimal places in your calculations and at least 2 in your final answers and at least 6 decimal places for interest rates. 4) Unless otherwise stated , interest rates are annual , and bonds pay semi-annual coupons and have a face value (or par value) of $1,000 . 5) You may use the back of the exam paper as your scrap paper (no scrap paper is permitted). 6) Instructors and invigilators will not answer questions during the exam. 1

NUMERICAL QUESTIONS 1. You are 29 years old. You plan to save for your retirement between now and age 65 (when you retire). You would like your savings to finance a retirement income of $81,300 per year (at the end of the year) from age 65 to age 93. You will earn 4.30% each year on your savings. How much do you need to invest at the end of every year between age 29 and age 65 to finance your retirement plan? A) $15,845.61 B) $21,403.45 C) $3,899.74 D) $22,430.12 E) $21,077.78 2. A savings plan makes annual deposits of $4,820 each at the end of the first 4 years, followed by 5 end-of-the-year deposits of $5,730 each. The annual rate of return is 6.40%. What is the amount that will have been saved when the final deposit is made? A) $53,770.62 B) $61,484.39 C) $73,325.19 D) $65,611.42 E) $123,258.82 3. An account provides $29,800 at the end of each year for 12 years, starting one year from now. The annual return on the account is 4.80%. How much should you invest today to finance this account? A) $279,952 B) $52,306 C) $620,833 D) $267,130 E) $650,633 4. A trust fund will provide $928,000 in scholarships each year forever, with the first payment to be made 2 years from today. The trust fund is expected to earn a 5.30% rate of return annually. How much should be set aside today to finance this fund? A) $15,791,208 B) $17,509,434 C) $16,628,142 D) $14,996,399 E) $13,856,785 2

5. Consider the following savings plan that has a present value of $14,100 at an interest rate of 4.50%: $X at the end of year 1, $2,800 at the end of Year 2, $3,800 at the end of Year 3, and $4,000 at the end of Year 4. Compute X. A) $5,070 B) $4,852 C) $3,500 D) $4,436 E) $6,084 6. Taylor S. borrows $3,880 from you today and promises to pay you $6,630 in 6 years. What is the interest rate you are charging her on this loan? A) 10.27% B) 9.75% C) 11.81% D) 8.49% E) 9.34% 7. A payday loan company charges customers a 1.79% monthly rate. What is the EAR on such a loan? A) 23.73% B) 21.48% C) 20.67% E) 19.87% D) 22.46% 8. You want to buy a condo in Toronto that costs $860,100 and have accumulated a 15.00% down payment. The remainder is financed with a 25-year mortgage over a 2- year term which you've negotiated with a local financial institution. As you are a high- risk borrower the best rate you can get is an APR of 6.70% compounded semi-annually with month-end payments. How much would you owe on the mortgage after your 24th mortgage payment? A) $713,925 B) $1,376,122 C) $706,528 D) $712,669 E) $642,298 3

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